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ECB Compliance Advisory

External Commercial Borrowings, also known as ECB, in short, are loans which are borrowed from foreign banks and institutions. As the name indicates, External Commercial Borrowings are borrowings that are made from foreign institutions and banks.ECB can only used for a specific purpose. Companies and public Sector undertakings (PSUs) prefer using ECBs as there is a low rate of interest payable on ECBs.

Package Inclusions –
  • Advisory services related to the use of External Commercial Borrowings.
  • Advice on your borrowing requirements.
  • Compliance and monitoring services regarding the use of ECB.
  • Liasoning with the RBI for ECB compliance.
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What are External Commercial Borrowings (ECB)? 

External Commercial Borrowings are commercial loans which are provided by foreign institutional investors. These loans carry a lower rate of interest in comparison to the interest rates which are offered by commercial banks in India. Therefore, companies and Public Sector Undertakings (PSU) prefer opting for ECBs.

As ECBs can be used only for specific commercial purpose, the borrower has to utilise the funds provided by foreign investors carefully. Therefore, it is essential to consider the business needs and long term goals of the organisation before opting for ECBs. Non-Compliance with the provisions of ECB will attract a penalty.

As these borrowings can be used only for a commercial specific purpose, there is an End-use requirement. This means that the ECB borrowed can be used only for the purpose mentioned in the End-use.

Routes under External Commercial Borrowings

Under the rules of RBI for foreign investment in India, there are two routes. The Automatic Route and the Approval / Government Route. ECB can be done through the Automatic Route and Approval / Government Route. However, under the Automatic route, there are certain ECB limits prescribed. The following are ECB Limits for particular sectors:

  • Infrastructure sector, real –industrial sector up to USD 750 million.
  • Software development sector, hotels, hospitals –up to USD 200 million.
  • Microfinance activities – up to USD 100 million.
  • A company or other remaining entities (other than a financial intermediary, registered under the Companies Act, can raise to USD 500 million in a financial year.

If the ECB value goes above the limit,  then the approval/government route has to be taken. Generally, companies can borrow under the automatic route. Approval needs to be taken under the following cases:

  • When a service sector company which is not in hotels, hospital or software services example R&D and Training institutions.
  • SEZ developers (wanting to provide infrastructure facilities in the SEZs) Co-operative societies, financial institutions or banks. 

External Commercial Borrowings cannot be used for the following purposes:

  • On-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate.
  • Investment in Special Purpose Vehicles (SPVs), Money Market Mutual Funds (MMMFs), etc.
  • Real estate sector, working capital, general corporate purpose and repayment of existing Rupee loans.
  • Guarantees (Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, Financial Institutions and Non-Banking Financial Companies (NBFCs) from India relating to ECB is not permitted).

Who Regulates External Commercial Borrowings?

The Reserve Bank of India and FEMA is the Regulatory Body and law related to External Commercial Borrowings. Apart from this, the Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations 2000, Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations 2000 regulate ECBs.

In 2018 a notification was passed by the Reserve Bank of India – the Foreign Exchange Management (Borrowing and Lending) Regulations 2018 provides the scope for RBI in consultation with the government of India to make certain changes.

Eligibility criteria for External Commercial Borrowings

Eligible borrowers-The following entities can raise money through ECBs:

  • Manufacturing and development sector;
  • SIDBI- Small Industries Development Bank of India;
  • Units in Special Economic Zones (SEZs);
  • Shipping and airlines companies;
  • Export-Import Bank of India (Exim Bank) (only under the approval route)
  • Non-Banking Financial Companies (NBFCs);
  • Companies in the infrastructure sector;
  • Holding companies;
  • Core Investment Companies (CICs);
  • Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) coming under the regulatory framework of the Securities and Exchange Board of India (SEBI);
  • NBFCs-Micro Finance Institutions (NBFCs-MFIs), Not for Profit companies registered under the Companies Act, 1956/2013, Societies, trusts and co-operatives (registered under the Societies Registration Act, 1860, Indian Trust Act, 1882 and State-level Co-operative Acts/Multi-level Co-operative Act/State-level mutually aided Co-operative Acts respectively), Non-Government Organisations (NGOs) which are engaged in microfinance activities;
  • Companies engaged in miscellaneous services viz. research and development (R&D), training (other than educational institutes), companies supporting infrastructure, companies providing logistics services;
  • Developers of Special Economic Zones (SEZs) or National Manufacturing and Investment Zones (NMIZs);

Eligible lenders- Who provide ECBs

  • International banks;
  • International capital markets;
  • Multilateral financial institutions (such as IFC, ADB, CDC, etc.);
  • Export credit agencies;
  • Suppliers' of equipment;
  • Foreign collaborators and
  • Foreign equity holders (other than erstwhile OCBs).

Procedure for External Commercial Borrowings

External Commercial Borrowings can be done through the Automatic Route or the Approval/ Government Route.

Automatic Route-

  • Any corporate who needs an external commercial borrowing should approach the concerned/ designated authorised dealer. An authorised dealer can be a bank, fully-fledged money changer or any other person. The application should be sent to the following address:

Principal Chief General Manager,
Foreign Exchange Department, Reserve Bank of India,
Central Office, External Commercial Borrowings Division,
Mumbai – 400 001.

  • The borrower must get the LRN (Loan Registration Number) from the Reserve Bank of India before taking the external commercial borrowings.
  • For getting the LRN- the applicant has to submit in duplicate Form 83 with all the documents.
  • Form 83 has to be certified by a Chartered Accountant or Company Secretary.
  • The form has to be forwarded to the designated bank.
  • One copy has to be submitted to the designated bank following address :

Director, Balance of Payments Statistics Division,
Department of Statistics and Information Management (DSIM),
Reserve Bank of India,
Bandra-Kurla Complex,
Mumbai – 400 051.

  • The borrower can draw-down the loan only after obtaining the LRN from DSIM, Reserve Bank.
  • Borrowers are required to submit ECB-2 Return certified by the designated AD bank monthly to reach Department of Statistics and Information Management (DSIM), Reserve Bank within seven working days from the close of month to which it relates.
  • The borrower has to submit form ECB to the RBI
  • After scrutinising the application, RBI will grant permission.

Approval Route- Under this route, the permission is required by the RBI. This is done through the authorised dealer.

Documents required for External Commercial Borrowing

  • Loan Agreement ( Borrowers need to enter into a loan agreement with the Authorised Dealer)
  • Loan Registration Number
  • Loan Registration Number has to be received from the Reserve Bank before securing the ECB.
  • The authorised dealer has to submit the form to the RBI to get the Loan Registration Number.
  • For getting the LRN, the Authorised Dealer has to submit form 83 in duplicate which has been verified by a CA or CS.
  • ECB -2 Return
  • Form- ECB

How can Enterslice Help

  • We can apply on behalf of you to the authorised dealer for requirements such as the amount of external commercial borrowings.
  • We continuously monitor the progress of your application with the concerned authorities.
  • We will assist you with the procedure for External commercial Borrowing.
  • We will also help in regulatory compliance with the RBI regarding your ECB.
  • We also offer post compliance services and guidance.
  • We value your time and money.

Frequently Asked Questions

Foreign Direct Investment is a form of an equity investment which is put in a business or venture or an organisation. Whereas ECBs are a type of commercial loan that is provided by a foreign company or a lender. The rate of interest related to ECB is less.

• ECB can be raised in Indian Rupees (INR) or any other convertible currency.

• As long as the purpose of the ECB is for commercial use, then the ECB is valid

Commercial purpose means for general business purpose. For example- in a recent amendment ECB can be used for general corporate and working capital purposes.

ECB includes Loans, Securitised instruments, Buyers' and supplier's credit, Foreign Currency Convertible Bonds (FCCBs). Financial Lease and Foreign Currency Exchangeable Bonds (FCEBs).

The lender for ECB purposes should be:

A member country of the Financial Action task Force which has financial institutions can lend under ECB framework. The following institutions can lend ECB.

• International banks;

• International capital markets;

• Multilateral financial institutions (such as IFC, ADB, CDC, etc.)

• Export credit agencies

• Suppliers' of equipment

• Foreign collaborators and

• Foreign equity holders (other than erstwhile OCBs).

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